Stronger Downtown leasing and “flight to quality” helps propel third quarter activity

Manhattan office leasing activity continued its rebound with third quarter volume of 9.1 million square feet (msf) up 12.7% from the pre-pandemic third quarter (2015-2019) average of 8.1 msf. Office leasing volume totals 25.3 msfyear-to-date and is clearly on track to surpass last year’s 26.0 msfof activity. A string of sizeable deals, most notably in Midtown and Downtown, pushed Q3 2022 leasing demand up 7.7% on quarter, in what was anticipated to be a typical soft summer season. Downtown quarterly leasing volume of 1.5 msfwas its highest since the start of the pandemic. A total of 16 deals were signed in excess of 100,000 square feet (sf), compared to 11 last quarter, with five of the top 10 executed in higher quality Trophy buildings (including Freshfields Bruckhaus Deringer’s 179,724 square foot relocation to 3 World Trade Center Downtown). Ten out of 12 major relocations (closed deals 50,000+ sf) in Q3 involved tenants who added space, bucking expectations of widespread footprint reductions due to hybrid work arrangements. Churchill Asset Management is among the firms expanding, and it will relocate from 18,500 sf at 430 Park Avenue to 52,124 sf at 375 Park Avenue. Corporate decisions to either add space or right-size real estate footprints continue to vary, with return-to-office policies and workforce planning in an uncertain economy playing a major role. Although physical office occupancy in Manhattan sits close to its highest level post the start of the pandemic, the long-run equilibrium remains to be seen.

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